TDS on FD Interest

Know all the details about TDS on FD Interest and download form 15G and form 15H to save your taxes.
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TDS on FD
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3 mins
21 March 2024

Just like your earnings apply to tax deductions, the interest you earn from making various investments is also applicable to tax deductions, also known as TDS on FD. It varies from instrument to instrument. Some financial tools are tax-saving havens, like the PPF and various life insurance policies. In contrast, some are taxed heavily based on the nature of earnings like income generated from the equity stock market. Before elaborating on how TDS on fixed deposit affects your fixed deposit investment earnings, here is a quick summary of the basics.

What is a Fixed Deposit?

The fixed deposit is a fixed income generating instrument where you can invest your savings and surplus income. In return you get return at a fixed rate of interest that is applicable throughout the tenure you choose. This interest rate is not based on market movements and is stable throughout the tenure. This makes it a very safe and low-risk appetite investment option, best for long-term financial goals. At maturity, the investor receives the principal amount and the accrued interest over the tenure. The interest earned by investing in Bajaj Finance Fixed Deposit is taxable.

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FD - Senior Citizen

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FD – Special Tenure

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8.85% p.a.
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What is TDS on FD?

Tax Deducted at Source (TDS) is a term used to define the concept of collecting tax from the income source of an individual. This process is done centrally by the Income Tax Department of the Government of India. However, on filing the Income Tax Returns the deductee, whose income has been taxed, can get the amount deducted by submitting the Form 26AS or TDS certificate issued by the deductor. TDS is fully applicable for interest earned on fixed deposits.

Everything about TDS on FD investments

Fixed deposits offered by banks and NBFCs are all applicable to tax deductions. Different thresholds of deductions on interest earnings are applicable to different age groups.

1. TDS on Bank FD

Interest income will be taxable if the earnings exceed Rs. 40,000 for citizens aged below 60 and up to Rs. 50,000 for senior citizens. The tax on FD interest is deducted at 10%.

2. TDS on non-bank (NBFC) FD

For non-bank (NBFC) FD, the threshold limit for tax on FD interest is Rs. 5,000. The interest income will be taxable if the earnings exceed Rs. 5,000 in the case of a company FD. The TDS is deducted at 10%. But if the interest you earn on FD exceeds the amount mentioned above, and you fail to share your PAN details with your bank or NBFC, the TDS to be deducted doubles to 20% of the interest earned.

Indian residents pay lesser TDS compared to their NRI counterparts, 10 and 30 per cent respectively. For both cases, you can submit Form 15G or Form 15H at the beginning of the financial year to claim tax exemption on fixed deposit.

If your total income is below the tax slab threshold, you can either submit supporting documents or file for a TDS return later.

How TDS on fixed deposit interest is calculated?

The total interest income from your fixed deposits in a given financial year must be included to your total income and taxed accordingly if the bank does not deduct TDS from it.

Even though it might not be paid out, include the interest income in your overall income on your yearly Income Tax Return (ITR). When filing an ITR, interest income must be disclosed under the heading "Income from other sources." Check which tax bracket you are in.

The TDS (which has already been deducted) will be adjusted by the income tax division against your final tax obligation.

By looking at your Form 26AS, you can see the specifics of the TDS that was taken from any of your earnings.

TDS on FD interest for senior citizens

Senior persons are eligible for income tax deductions of up to Rs. 50,000 per year. It is relevant if they get interest income from fixed deposits, savings accounts, and recurring deposits. This is a change made in accordance with the 2018 finance act.

TDS on FD interest for non-senior citizens

The TDS (tax deducted at source) rate on FD (Fixed Deposit) interest for non-senior citizens in India is 10% of the interest earned, provided the interest income exceeds Rs. 40,000 in a financial year.

If your total income for the financial year, including the interest income from FD, is below the basic exemption limit, you can submit Form 15G or Form 15H to the bank. This acts as a request that no TDS be deducted on the interest income.

If you fall in the higher tax bracket, you may have to pay additional tax on the FD interest earned, over and above the TDS deducted by the bank. You should consult a tax expert or refer to the latest tax laws to understand your tax liabilities and obligations.

Is FD interest taxable if my income is below the tax limit?

Yes, fixed deposit (FD) interest is taxable even if your income is below the tax limit. Interest income from FD is considered as income from other sources and is taxable as per the income tax laws in India.

However, if your total income including the interest income from FD is below the basic exemption limit. You may be eligible for a refund of the TDS (tax deducted at source) that may have been deducted by the bank on the interest earned.

It is important to note that the basic exemption limit may vary from year to year, depending on the prevailing tax laws. You should consult a tax expert or refer to the latest tax laws to understand your tax liabilities and obligations.

About Form 15G and 15H

Form 15G and Form 15H are documents that declare your income is below the minimum tax slab for the particular financial year. Citizens aged above 60 years are also exempted from paying TDS on interest earned on fixed deposits if their total income from investments does not exceed Rs. 3,00,000. All they need to do is submit Form 15H. If the TDS has been applied and your total income is below the minimum tax slab, then you can claim a TDS refund on fixed deposit income while tax filing annual IT returns.

With this information, you can now start your investment journey and plan to manage tax deductions wisely.

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Frequently asked questions

How TDS is calculated on FD?

TDS on FD is calculated as follows:

TDS = interest earned * TDS rate

Where:

  • TDS = Tax Deducted at Source
  • Interest earned = interest earned on the FD
  • TDS rate = The TDS rate applicable to the FD, which is 10% for Indian residents and 30% for NRIs

For example, if you earn Rs. 10,000 in interest on an FD in the financial year 2022-23, the TDS that will be deducted is Rs. 1,000 (10% of Rs. 10,000).

Can TDS be claimed on fixed deposits?

Yes, TDS can be claimed on fixed deposits. If you are an Indian resident and your interest income from FD exceeds Rs. 10,000 in a financial year, you can claim a deduction for the TDS paid while filing your Income Tax Return. You can do this by filing Form 15G or Form 15H with your bank or financial institution. These forms allow you to declare that you expect your total income to be below the taxable limit, and therefore you do not expect to pay any income tax. By filing these forms, you can avoid the TDS being deducted from your interest income.

It is important to note that the TDS rules on FD can change from time to time. So it is always advisable to check with your bank or financial institution for the latest TDS rates and rules.

What is the minimum tax on fixed deposits?

The minimum tax on fixed deposits in India is 10%. This is the rate of tax deducted at source (TDS) on interest earned on fixed deposits, if the interest earned exceeds Rs. 40,000 in a financial year. For senior citizens (60 years or above), the TDS threshold is Rs. 50,000.

If you are an Indian resident and your interest income from fixed deposits does not exceed the TDS threshold, then no TDS will be deducted. However, you will still be liable to pay income tax on the interest income, if your total income exceeds the taxable limit.

You can claim a deduction for the TDS paid while filing your Income Tax Return. You can do this by filing Form 15G or Form 15H with your bank or financial institution.

Can TDS on fixed deposits be avoided?

Yes, TDS on fixed deposits can be avoided by submitting form 15G or 15H: If your total income for the financial year is below the taxable limit, you can submit Form 15G or 15H to your bank or financial institution. These forms declare that you do not expect to pay any income tax in the current financial year. By submitting these forms, you can avoid TDS being deducted from your interest income.

How much FD interest is tax free?

The interest income from fixed deposits is taxable in India. However, there are certain limits on how much interest income is tax-free.

  • For individuals below 60 years of age, the first Rs. 40,000 of interest income is tax-free.
  • For senior citizens (60 years and above), the first Rs. 50,000 of interest income is tax-free.
  • For differently abled persons, the first Rs. 50,000 of interest income is tax-free.

If your interest income from fixed deposits exceeds the tax-free limit, you will be liable to pay income tax on the excess amount. The tax will be levied at your applicable income tax slab rate.

What is the TDS rate on FD?

TDS (Tax Deducted at Source) on FD is currently deducted at a rate of 10%. If the total interest earned on FDs for a financial year exceeds Rs. 40,000. However, if the investor's PAN is not available, TDS is deducted at the rate of 20%.

What is the tax payable on FD interest?

The tax payable on FD interest depends on the income tax slab rate of the investor. The interest earned on FDs is added to the investor's total income, and tax is calculated based on the respective income tax slab rate.

Will I be able to get FD interest without TDS if my income is below the taxable limit?

Yes, investors can submit Form 15G or 15H to the bank if their total income for the year is below the taxable limit. This will enable them to avoid TDS deduction to claim the full amount of FD interest.

What is the tax deduction on FD interest for senior citizens?

Senior citizens can claim a deduction up to Rs. 50,000 per annum on the interest earned on FDs under Section 80TTB. This deduction is available only to senior citizens and is in addition to the tax deduction available under Section 80C.

Can I claim deduction for the interest income earned from fixed deposits?

Yes, investors can claim a deduction of up to Rs. 10,000 on interest earned from fixed deposits under Section 80TTA of the Income Tax Act. This deduction is available to individuals and Hindu Undivided Families (HUFs).

Can I save tax by investing in fixed deposits?

Yes, one can save tax by investing in fixed deposits under Section 80C, which allows a deduction of up to Rs. 1.5 lakh per annum. However, interest earned on FDs is taxable, and TDS may be applicable if the interest earned exceeds the threshold limit.

What is the exemption limit for TDS deduction on FD?

The exemption limit for TDS deduction on FDs is Rs. 40,000, which means that if the total interest earned for a financial year on FDs held with one branch of a bank exceeds Rs. 40,000, TDS will be deducted at a rate of 10%. However, if the investor submits Form 15G or 15H, TDS can be avoided even if the interest earned exceeds Rs. 40,000 if the total income is below the taxable limit.

What is the Digital FD offered by Bajaj Finance?

Bajaj Finance has launched a new FD type called "Bajaj Finance Digital FD" for a period of 42 months. Bajaj Finance is providing one of the highest interest rates of up to 8.85% p.a. for senior citizens and for the customers below the age of 60 they are providing up to 8.60% p.a. The Digital FD can be booked and managed only through the Bajaj Finserv website or app.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.